II. MACRO- AND STRUCTURAL CHANGES IN THE EUROPEAN ECONOMY, 1290 - 1520

1. II. MACRO- AND STRUCTURAL CHANGES IN THE EUROPEAN ECONOMY, 1290 - 1520 B. MONEY AND MONETARY CHANGES IN WESTERN EUROPE, 1290 – 1520 (Part 1)

3. Money in the Medieval Economy • Why Population (Demographic Variables) is more important than Money, in the Medieval Economy • The Restricted Scope of the Medieval Market Economies: and why market economies have to be monetized • The expanding scope of money and market economies from the Commercial Revolution era: from ca. 1100 CE to ca. 1320 • Functions of Money (4) in the medieval economy

4. The Four Functions of Money • (1) Money as a medium of exchange: gold and silver and then copper coins (all copper: only from 1543) • (2) Money as a standard of value: i.e., the monetary function of ‘moneys of account’ for recording prices, values, exchanges, wages, rents, interest payments, etc. • (3) Money as a store of value:savings • (4) Money as a standard of deferred payment: money as credit (or as debt instruments). • NB: Medieval & Early Modern Europe: operated on a silver-based standard, supplementedby gold

5. Charlemagne (c. 800) and the medieval moneys of account 1 • Emperor Charlemagne (ca. 795-800)established what became the most widespread west European money of account: the system of pounds, shillings, and pence • 1 pound weight (libra) of silver was divided, for accounting purposes into 20 solidi or shillings [solidus: Imperial Roman gold coin] • Each shilling was subdivided into 12 pence, ordeniers = from the Imperial Roman denarius silver coin

6. Medieval moneys of account 2 • pennies – were long the only circulating coins • Thus: £1 = 20s = 240d • The system was always tied to and based on the currently circulating silver penny • Based ancient Babylonian systemof counting in units of 12 and the Celtic-Frankish system of counting in 20s [quatre-vingt = 80]

7. Ancient & medieval values of gold and silver • In Roman Imperial times, gold:silver ratio was about 12:1 • 1252: re-introduction of gold coinages in the West: Genoa (genovino) and Florence (florin) • 1284: Venice: introduced gold ducat (= florin) • gold:silver ratio was then also 12:1 – until the early 14th century • Today (21 Sept 2013): G-S ratio = 60.84:1

8. Florence, florin, 1252-1422 Genoa, genovino, 1252-1339

9. Venice, zecchino, Ludovico Manin, 1789-97 Venice, ducat, Giovanni Dandolo, 1285-89

10. English Medieval Gold Values • Medieval England (from 1344): • Noble was the chief gold coin = 6s 8d = 80d sterling (silver pennies) - [quarter-noble or ferlin = 20d] • 1351 – 1411: Noble contained 120 Troy grains = 0.25 Troy ounce fine gold • Value of gold noble in terms of builders’ wages: • no. days’ wage income for a master mason or master carpenter to earn 1 noble (80d): from 1365 to 1411 • at 6d. per day (12 hour day): 80d (noble)/6d. = 13.333 days (or over two weeks income: at 6 days per week)

11. The English Gold Noble: Edward III

12. Modern Day values of gold and skilled labour • Master Carpenter: Toronto in Sept. 2013: • $36.91 per hour: earnings for 13.333 days @ 8 hours per day: $3,936.97 (before taxes, but plus benefits) • Gold today: $ USD = 1,325.60 = $1,363.64 CADper Troy ounce • 0.25 Troy ounce (gold in 14th century Noble) • 0.25 * $1,363.64 = $340.90 CAD • SO: gold today is worth far less, in terms of builders’ wages, than it was in medieval England: • conversely, labour today is worth far more: i.e. $3,936.97 vs. $340.90 CAD for 13.333 days’ wages

13. How was the coined money supply increased in medieval Europe? • (1) Discovering and developing new gold and/or silver mines: but most countries lacked such mines: chiefly found in Central Europe • (2)Enjoying a ‘favourable balance’ in foreign trade’: so that export revenues exceeded the costs of imports (goods & services)  gold inflow • (3) By Coinage Debasements: • to increase the number of coins of a given money of account value (£) struck from a given mint weight of silver: e.g., the English Tower Pound (12 oz), the French marc (8 onces):

14. Definitions of Debasement • Coinage debasement: is the reduction of the precious metal content – silver or gold – in not just the coin itself but in the unit of the money of account • MONEY OF ACCOUNT: the penny, the shilling, and the pound (system or reckoning prices) • With 12d (pence) to the shilling, and 20 s (shillings) to the pound, so that 240d = £ 1

15. How Coinage Debasements were Effected • (1) By a reduction in the fineness: • i.e., in the percentage of fine silver or gold in the coin, by adding proportionately more copper, less precious metal [copper: a base metal] • (2) By a reduction in the coin’s weight • (3) By an increase in the nominal money-of-account value of the coin - reserved normally only for gold coins and high value silver coins (that were not physically debased, as given above): e.g., gold noble from 6s 8d (80) to 10s 0d (120) in 1464

16. Debasements & Money of Account • (1) Debasements always increased the money-of-account valueof the precious metal struck • (2) With techniques nos. 1 & 2 – reductions in fineness & weight were often combined: • increased the total number of coins struck from mint weight (pound)  increased money-of-account value of lb of silver

18. Debasements: monetary or fiscal policies? • Two questions about the political rationale for medieval debasements: • (1) were the coinage debasements in undertaken principally as • monetary policies: to expand money supply? • or fiscal policies: to earn seigniorage revenues? • (2) were they beneficial or harmful? • And for whom were they harmful or beneficial? • the prince and his government? • or his subjects: the inhabitants of his lands?

19. Debasements as Fiscal Policies I • Concept of the ‘seigniorage tax’: a burden on the public as an extra tax on real incomes • Inflation: almost always the inevitable result, • - often the most important factors in reducing real incomes (except for some merchants) • - certainly for wage-earning labourers and artisans: nominal wages (in silver pence) not rise with prices

20. Debasements as Fiscal Policies II • My thesis:that medieval debasements were either AGGRESSIVE OR DEFENSIVE (response to aggression) • (1) Aggressive debasements (unprovoked) were primarily undertaken asfiscal policies, to earn seigniorage revenues • specifically to finance warfare. • – with the partial exceptions of England (to 1542) and early-modern Spain (from 1497) • Not undertaken to remedy coinage scarcities,despite evidence for late-medieval bullion famines • (2) Defensive debasements: were undertaken to protect the realm against GRESHAM’S LAW: protection against a neighbour’s aggressive debasements

21. How Debasements increased a prince’s mint revenues • Objective: to increase his seigniorage revenues, by two means: • (1) by increasing the seigniorage tax rate (tax on minting): as a proportion of the bullion brought to mint); and • (2) by enticing an increased bullion inflow into his mints: especially influx of foreign bullion • by the debasement techniquesthemselves • and by auxiliary bullionist policies: • esp. to prevent bullion exports (but not coin exports), • enticing bullion influxes from abroad – esp by minting counterfeits of neighbours coins  GRESHAM’S LAW

22. Conditions for effective medieval debasements • (1) that merchants supplying bullion receive more coins of the same face value and thus with a greater aggregate money-of-account value than before (or than from other mints); • (2) that the public accept such debased coinsat the same face value, by tale; and • (3) that the merchants spent their increased supply of coins quickly, before any ensuing inflation eroded those gains. • - NB: merchants: enjoyed asymmetric information about the debasement & mint price

26. Flemish Coinage Terms (1) Values in money-of-account • 1 penny or 1 d groot = 24 mites = 12d or 1s parisis (2) Fineness or silver purity: reckoned out of 12 deniers argent-le-roy, with 24 grains per denier = 23/24 or 95.833% pure silver (3) Weight: reckoned not in terms of ounces, but in terms of the ‘taille’ or the number cut from the Marc de Troyes of 8 onces = 244.753 grams

28. Hammered Coinages I • Hammered Coinages:Crudity of Medieval Minting Techniques explains successes of both debasements and counterfeiting • Results: no two coins were exactly identical in size, shape, and weight • Weight: defined not in fractions of an ounce but in the number (taille) struck from the marc/ pound • Therefore most consumers and shopkeepers could not readily detect newly debased coins: note from Flemish debasement of 1428 how small the changes were, in both fineness and weight

30. Hammered Coinages II • (1) Scales and Touchstones: necessary tools to test coins: available only to money-changer bankers. • (a) accurate scales: having to weigh many coins – 50 or 100, in batches • (b) touchstones: to gauge the fineness or purity of the metals (rubbing coins against the stone) • - touchstones were accurate only to about 5% • (2) Coins circulated by TALE: number --not by weight and fineness (except for high-valued gold coins): too costly to test coins (transaction costs)

31. Hammered Coinages III • SWEATING AND CLIPPING COINS: private means of debasing coins • Introduction of water-powered machinery in 1690s: to produce almost perfectly shaped coins, with milled edges • allowed recipient to detect changes visually • major factor ending debasements

32. Quentin Massys: The Banker and His Wife (d. Antwerp: c. 1530)

33. Debasements and Inflation • Debasements were, indeed, generally inflationary, if only by increasing the money supply: no. of coins in circulation • BUT the inflationary consequences of debasements were always less than those predicted by the mathematical formula: • ΔT = [1/(1 - x)] – 1 • in part, because those debasements failed to counteract the prevailing forces of monetary contraction and deflation: in the later 14th and 15th centuries (1390s to the 1480s).

34. Defensive Debasements: Gresham’s Law • to protect domestic mints from foreign competition, i.e., from aggressive coinage debasements from one’s neighours (2) to protect domestic money supplies: from influxes of debased and counterfeit imitations from neighbouring realms i.e., to counteract Gresham’s Law:that ‘cheap money drives out dear money’

35. Gresham’s Law • (1) Elizabethan financier (ca. 1570) who popularized the so-called ‘law’, well known from 14th century • (2) ‘Cheap Money Drives out Dear’ • i.e., if two coins appear to have the same nominal face value (e.g. 1d), but one has less silver content than the other, therefore  • One spends the lower-value or inferior (‘cheap’) coin, with the same nominal face value; • and hoards, melts down, or exports the higher silver-content coins (to wherever it has higher value)

36. Gresham’s Law & Bimetallic Ratios • (1) MINT RATIO: ratio of the official values of gold and silver (as coined) with country A • - 10:1 bimetallic ratio means that 1 ounce of coined gold has 10 times purchasing power of 1 ounce of coined silver (silver = 1/10th gold) • (2) MARKET RATIO: 12:1, determined by: • (a) foreign bimetallic mint ratios: gold & silver • (b) market supply of and demand for both metals • (c) industrial demand for two metals (jewellry)

37. Gresham’s Law & Bimetallic Ratios • (3) With this difference, merchants: will take • silver to mints in Country A, with relatively higher price for silver • gold to mints in Country B, offering the higher mint ratio for gold (thus lower mint ratio for silver) • (4) Thus differing mint ratios may drive gold out of A, and so drive silver out of B

38. Traite of the Marc de Troyes • Monetary unit of medieval France & Flanders: expressed in livrestournois (£) of France • Marc de Troyes= 8 onces = 244.753 grams • argent-le-roy: 23/24 fine silver = 95.833% pure • Traite: money-of-account value of the total amount of coinage struck from one marc argent le roy • Traite = (taille * value)/percent fineness • taille:number of coins struck to the marc* the face value of the coin/ divided by  • The finenesss of the coin: in deniers and grains AR: • - e.g. 68.0 * 2/ (6/12) = 136d = 22s 8d groot (or gros)